[Editor's note: A version of this story appears in the June 2018 edition of Oil and Gas Investor. Subscribe to the magazine here.]
Is it time for Austin Chalk 3.0?
Large E&Ps have amassed nearly 600,000 acres in the Louisiana Austin Chalk extension over the last six months where ConocoPhillips Co. (NYSE: COP) and Marathon Oil Corp. (NYSE: MRO) are readying permits to start appraisal drilling in late 2018.
They are joining EOG Resources Inc. (NYSE: EOG), whose Eagles Ranch 14-1H Avoyelles Parish well sparked interest in the Louisiana Chalk in September 2017.
These new entrants gained experience in developing Austin Chalk targets in the Karnes Trough core of the Eagle Ford over the last two years. The question is whether learnings in how to hydraulically fracture matrix oil in a carbonate reservoir will transfer to the Louisiana Chalk.
The Austin Chalk is found in a 30-mile wide fairway arcing 650 miles from the Mexico border into Mississippi. In Texas, the Chalk sits atop the Eagle Ford.
Austin Chalk versions 1.0 and 2.0 involved intersecting natural fractures and draining oil that had migrated in from the underlying Eagle Ford Shale. Successful wells produced large volumes of oil or gas within six months, but quickly depleted. The advent of short radius horizontal drilling brought renewed interest to the trend in the late 1990s—Austin Chalk 2.0— but low oil prices, corporate re-organizations and technical challenges saw the play fade.
Then, last September, EOG’s $12-million Avoyelles Parish Eagles Ranch 14H-1 came in at 1,120 barrels of 43 gravity oil and 1.187 million cubic feet per day (MMcf/d) of gas on an open choke. EOG’s well encountered a 280-foot section of the Chalk from 15,590 to 15,870 feet with the lateral placed at the bottom of the Chalk Formation on top of the Tuscaloosa Marine Shale. Total measured well depth was 21,900 feet. EOG has leased 130,000 acres in Louisiana.
The independent indicated on its first-quarter 2018 earnings call that its Texas Austin Chalk efforts were generating 150% after tax rates of return with average 30-day production from eight wells of 2,750 barrels of oil equivalent per day (boe/d). EOG intends to drill 25 net Austin Chalk wells in 2018. Current testing involves well spacing and where to target lateral placement for high-density fracture stimulation.
In April, ConocoPhillips disclosed it had amassed 245,000 acres in the Louisiana Chalk, followed by Marathon Oil a month later, which announced that its 245,000 in recent lease acquisitions included a substantial position in the Louisiana Chalk. Other public players include PetroQuest Energy Inc., which acquired 24,600 gross acres for $18.6 million in Pointe Coupee Parish at year-end 2017. The company will spud its first test later this year.
Recent leases have exceeded $1,500 per acre, up from $300 per acre in 2016. Interest in leases has extended into Wilkinson County, Miss.
While Austin Chalk 2.0 is concentrated in western Louisiana, the latest iteration is focusing on Chalk targets in eastern Louisiana. In March, the Louisiana Department of Natural Resources noted that leasing was underway in Rapides, Avoyelles and Pointe Coupee parishes.
In western Louisiana, Chalk production from the Masters Creek, West Masters Creek and Sugartown fields produced 34 million barrels (MMbbl) of oil and 148 Bcf in gas as part of Austin Chalk 2.0, compared to cumulative Chalk production of 55 MMbbl of oil and 246 Bcf of gas in Louisiana.
In all, the Austin Chalk trend has produced more than 1.3 Bbbl of oil since 1902. Texas Chalk wells are producing estimated ultimate recoveries of 600,000 boe.
Several privately held companies are exploring the Louisiana Chalk, led by Sola Energy Resources LLC in Avoyelles Parish, and Texegy Operating Co. LLC, which amassed a position in Sabine Parish in 2016. Long-time Louisiana player Amelia Resources LLC sold 85,000 net acres in the Louisiana Chalk to ConocoPhillips in December for $87 million and has an additional 360,000 acres leased.
Also, BlackBrush Oil & Gas LP is completing an exploratory test in the Louisiana Chalk. BlackBrush drilled the first Chalk horizontal well in Karnes County, Texas, in 2014, initiating Austin Chalk 3.0. BlackBrush employs managed pressure drilling to evaluate the formation in real time while preventing formation damage. The company sold 87% of its Karnes County Chalk acreage to EnerVest Ltd. in 2016.
Well costs range from $9- to $12 million but are expected to drop below $8 million once the science is done.
Watch for more talk of Louisiana Chalk results in early 2019.
Richard Mason can be reached at firstname.lastname@example.org.
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